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tv   The Call  CNBC  January 6, 2010 11:00am-12:00pm EST

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time for six in 6 on. i'm starting. you get three and i get three and we begin as soon as the clock comes up. now, all right. family dollar store, the top s&p gainer. the discounter's quarterly profit up 14%. consumer traffic was up and the stock was up as you can see, 11.5%. the biggest gainer on the s&p. moving on to the next name on our list. 3m, fresh one-year high. goldman sachs adding the company to the conviction buy list and brinker operational and the restaurant operator upgraded to buy and merrill lynch which
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boosted its price target on eat which is the ticker from 18 to 17. >> arch coal upgraded to buy from neutral and the firm upping its price target to aci from 28 to 24. american express upgraded to outperform from neutral. the firm's price target on axp 49. dow chemical fresh 52-week high and upgraded from overweight to equal weight. the price target on dow is 40. they don't tell you as they stop the clock. >> before it comes up. >> there's a story that mark -- i don't know if you saw yesterday, this is a very important story, there is a company in hawaii called island dairy that makes milk. if they don't make milk locally it takes about ten days to get it. they need milk locally and they wanted to get more cows. they went to an ag expo and read a magazine called progressive dary and they decided to get the cows water beds and the cows now have water beds and they're
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producing 10 to 20% more milk because their bellies get to rest on the nice water bed. >> you bring that up when there's no time to talk about it? okay. i'll see you tomorrow at 9:00 a.m. >> can you imagine the belly right on the water bed? bye. hello, everybody. welcome to "the call." i'm mandy drury standing in for trish regan. we are 90 minutes into the session. stocks are flat and trying to rally off their opening losses after mixed economic data. we'll take a look at the market reaction. larry? >> hello, mandy. i'm larry kudlow. did you see the front-page article in "the new york times" on the fed? >> i did. >> it raises this question and how can the fed catch the next market bubble if it missed the last one? >> and bob doll will join us with his market predictions for 2010. you might want to listen up. he made 12 predictions last year. 11 of them were correct. this is "the call" on cnbc.
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all right. stocks trying to rally off opening lows and now basically flat after mixed jobs data. steve liesman will have more details on that coming up in a little bit and on the economic front, the service sector grew in december, but at a marginal pace. right now take a look at how the s&p is trading and we've been all over the map and you can see on the chart and right now it's basically positive and essentially flat on the session. the dow right now is up 0.1%. 10,585 and the nasdaq trading on the plus side, but basically flat. let's check in with mandy drury down at the new york stock exchange. good morning, hand pep. >> good morning to you as well, melissa. so much for the first one-day wonder. it seems as though we've lost that momentum in the last couple of sessions and it's still very early days and we've got a long way to go before the end of the trading day. let's take it to bob pisani. yesterday we were talking about the airlines and i believe there's something more happening in that space today. >> we're still getting more of that and it's still very choppy.
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their december traffic numbers were pretty good and the stocks moved up nicely and some were at 52-week highs right now. southwest was at a 52-week high. tonight it's more choppy data. us air and amr were weaker than expected. the important news is u.s. air is getting a loss that's a little less than expected here and in general the trend is airline revenue is improving. the earnings estimates are generally improving and they're want as bad as they were. the estimates were three or four months ago. i still say the trend is still up here despite spite the fact the numbers weren't quite as long. >> when you go on a plane it feels really full, but things are going well. >> usually they cut their capacity 8. % in 2009 and they're not going to be adding any new capacity in 2010. so very disciplined approach and that's a good sign. completely different sector. >> this choppy thing. remember the fertilizer
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companies in 2008 all fell apart. i mean, their valuations were cut by more than 50%. mosaic, one of the world's largest makers of potash and phosphate. there's a three-year chart and it was 163 and went to the 30s in six months. fertilizer prices dropped. so what we're seeing there and the numbers came in and the important thing is volume is improving. prices are generally improving and potash is still a very tough situation worldwide and revenues are generally improving. it's the same with the airlines that is with the fertilizer and generally the trend has been improving, too. >> we like the debates where we pit bears versus bulls and it is getting hard to find the bears. everyone is bullish, but maybe guidedly bullish. >> does that send a signal to us. >> the question is how good are sentiment indicators. look at the american association of individual investors and they do a bull/bear indicator. last week you take the percentage of the bulls and bears and it was 70%,
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traditionally, amanda, when they're around 70% that's often a market top. etig pointed this out this morning. october 2007 and may 2008. we got right up there and those were market tops at least in the short term. so there are some of these sentiment indicators that bear watching and i'll bring people up-to-date on that. >> remember when mark haynes called the haynes bottom? i wonder if he'll call the top. >> of course, we have economic data today and just like yesterday it came in a little mixed moving in opposite directions. let's take a look at what went behind the scenes. steve liesman. hi, steve. >> thanks very much. the employment data shows improvement, but if your criteria is whether it added jobs in december, ism coming in at 50.1, and good for economic growth and the employment component improofed for the second straight month, but at 44
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it still shows we're losing service sector jobs. only two of 14 industries surveyed reported job gains. on to the other jobs data, the private sector employment company saying the sector fell by 84,000 in line, pretty much with estimates that were out there. november revised to show a little bit better and 245,000 job loss and non-farm payroll surveyed by dow jones is minus 10,000. so a little bit of a gap there. there has been an ongoing gap between the two which if you put two side by side, there's jobs by industry down 96,000 for manufacturing. service, though, you had the first gain you had in a long time there. manufacturing still losing jobs down 43,000 and small business. it was the best small business number since july '08. you see here we've been undershooting the bls, including triple digit misses in five of the past seven months and they counted 600,000 job losses in
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the beginning of '0 and it could put them more in line. challenger gray & christmas, their declines were better than expected and more news from them. cuts of 45,000 which is a 73% decline from a year ago. it's a 10% decline from november and the fifth consecutive decline in job cuts. however, for all of '09 we were up 5.3% to 5.3 million, the most since 2002. two different stories here. job cuts in the second half down 56%. when i did the number, guys, i looked and it says when you have job cuts below 50,00092% of the time there, is job growth in the economy and sometimes a 0.22% on average. so three numbers this morning all showing improvement and only two would point you, larry, to saying that we're want going have job declines in the month of december. >> ism services employment 44 points in december and 41.6 in
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november. that could push you to positive territory in friday's jobs report. >> and two is not bad. two out of three? >> what do you think, steve? >> if you took the prize yesterday for that call, i'm thinking is it now hanging in the air? do we take it back? >> i don't think we can take it back. >> i think we can still eke out a positive number. a positive in november, but the 44 as far as i happened is still consistent with the contracting service sector, but it is an improvement. >> i would never take it back and do such a thing. steve lies mid-cap, stick around. as the economy is slowly up proving our next guest in a front-page "new york times" article raises this point, how can the fed catch a new bubble if they missed the last one? david reinhardt, and chief economist of first trust advisers on. welcome, happy new year. the question is how can the fed catch a new bubble if they missed the last one?
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>> yeah. so the fed right now is asking for more powers and the obama administration supports that request. when they talk about this one of the things they say is, look, if we had better structures we could have done more to deal with this huge bubble and i agree with that. the second question we need to ask is would they have actually used those structures and when we look at what greenspan and bernanke said in it 2003, 2004, 2005 and 2006. they were saying there is no housing bubble and it is hard to believe that if we go backward in time and give them the extra powers that they would have use them because they didn't use the powers they have to say crack down on some of these crazy mortgages that the fed did have power to crack down on. that's the question that i was raising. >> brian, do you agree with that? >> i think the fed caused the bubble in housing. the one that they didn't see in the first place. by the way, i think there's a bubble right now, too, but it's in government and if you look at the cost of interest to the federal government, they're extremely low and one of the low
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nest 30 or 35 years that masks the real cost of all these deficits. having 0% interest rates, i think, is going to cause us way more problems down the road than it's helping us today. in other words, the net cost of it is a negative for the economy. >> let me go to related, regarding monetary policy, not regulatory policy, bernanke's speech on sunday basically removed any culpability from the fed in conducting interest rates and monetary scombas creating money. they attacked -- bernanke attacked john taylor's monetary rule and the so-called taylor rule. taylor fights back and he's on the kudlow report tonight, but taylor says wait a minute, the sefrdz overwhelming that low interest rates want only caused the housing boom, but also caused a lot of risk taking brian westbury. what's your take on this debate between john taylor and ben
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bernanke? >> there's a lot of pieces to it, but i think one of the most important is that ben bernanke says that it wasn't the low interest rates that created all of these exotic mortgage products. i completely disagree. when you have 1% interest rates and there's all kinds of leverage and there's a mirage created. people thought money was free, that risk was very low and we dreamed up a lot of these products and it made it look like the risks of those products were lower than they really were. >> right. >> so i believe the 1% interest rates actually helped create the products that ben bernanke is blaming for the bubble. >> exactly. >> let's go to the central question. what do we do now to make sure this doesn't happen again? how do we write them up. if i read into what david says if they didn't recognize the bubble last time they're not going to this time. do we need different people in charge? is it a structural problem or is it who's in charge? >> i agree with david especially
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the part where the fed has not come forward and the public accounting of what went wrong, and i also would supplement his conclusions as to why it went wrong with the notion of regulatory capture. i think the fed was too close to the banks and didn't do enough investigation to look at these sivs and these off-balance things. how did they miss whatever number it was that city had off-balance sheet and not see risks there. i will point out, however, the fed has made some changes and whether or not they're enough i don't know, but it's worth putting on the table the fact that the fed is doing much more of what they call horizontal -- >> let me make this point. >> the fed is doing horizontal reviews. >> like they're laying flood their back? >> let's get david back in. >> the concentration of risk in different categories across banks rather than individually vertically within the bank. >> what's the solution? >> i'm skepticel that only if we get better people. ben bern archingy is an excellent central banker. >> what should we do? >> think probably what we need are more rules because we'll
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always figure out thou justify a bubble. this time it's different. we're running out of real estate in san francisco and florida. imagine that you have something that says, look, whenever the price of houses relative to rents and incomes and relative to something reaches a certain level we start to tighten something like down payment restrictions and we start to make it more difficult for people to get mortgages. instead in this case the opposite happened. it became easier for people to get mortgages and if we had something like that it would be harder for regulators to persuade themselves that this time it's different. i think it's human nature to get involved in financial bubbles and we're never going to avoid them. >> brian westbury, look. i don't want disagree with what dave is saying, but i want to ask you, when you look at the chart the federal reserve for four years, '02, '03, '04 '05, '06, for five years, kept the fed funds rate negative. the real fed funds rate was negative and they kept it below
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the inflation rate. if you're going to run that kind of easy money don't you spark massive leveraging and risk taking regardless of the exotic instruments and regardless of the government forcing unaffordable mortgages and the rest of that stuff, regardless was mistakes of the bankers. if the fed keeps money so cheap -- >> right. >> so cheap -- >> it is almost like the answer is implied in the question there. >> i don't understand how you get away from this. >> it's the answer. >> i use a very simple model. i use nominal gdp growth and i compare the federal funds rate to it. in fact, i wrote a book about this, it's called it's not as bad as you think. it is out right now and you can get it at where i describe this model. when the federal reserve holds interest rates, bad things happen and they did it in the '07s and did it in the early 2,000,000. he wants to use housing prices
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and jack kemp, steve forbes and lots of people talking about a gold standard. >> larry kudlow. >> commodity price rule for money. >> commodity price rule. >> forget the houses, look at the commodity. they always tell you what's going on. >> we're up against a hard break. >> thank you very much, brian westbury. thank you very much, steve liesman. thank you very much. you will hold on to your nobel prize. by the way this evening on "the kudlow report," john taylor will fight back. the creator of the taylor rule will join me live to sound off on what some are calling ben bernanke's whitewashing the fed culpability in the housing and commodity bubble. that's tonight, cnbc, 7:00 p.m., outspoken john taylor. very interesting. mandy, over to you. we'll be watching, larry. coming up on "the call." the changing economy is changing the decision making process for car buys are. we'll have a new deloitte survey on what generation y wants in a car. ellisa? >> first, he tried to lead the way in financial reform overhaul
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and now chris dodd is throwing a curveball announcing he won't seek re-election. what does it mean for reform moving forward? that's up next right here on "the call." >> we'll be right back. >> bye-bye. 
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hi, folks. welcome back to "the call."
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i'm matt nesto. it's the smallest media stock in the s&p 500, but the hottest right now. check out the intraday spike. the stock is up 4.5, 5%. the company with sec filing two weeks before they come out with the second-quarter results and it looks to be much better than expected. 45-47 is what they see, consensus now at least with thompson reuters is 41 and the stock is on the move. the shares have doubled in the past year. they say that their national and local advertising markets appear to be less worse than they original le forecast. so mdp is on the move with a pre-announced second-quarter result that looks better than expected. mandy, back to you. >> we like better than expected, don't we? matt nesto, thank you very much. senate committee chairman christopher dodd plans to pass financial regulatory reform legislation this year despite announcing his retirement next year. john harwood is in our d.c. bureau with more on what retirement means for financial
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regulation reform. john? ? that's the first question everyone's been asking since chris dodd indicated that he was going to retire. he's had 30 years in the senate, a lot of experience. he was deeply into this issue and his colleagues said on cnbc this morning that his loss is not going to be easy to fill. >> that's a big loss for the senate. he's deeply knowledgeable. somebody that has been really on the front lines of economic recovery and of course, an improvement in the regulation of financial institutions across the country after we just narrowly averted what could have been a global collapse. the loss of the institutional memory is a significant one. >> here's the bottom line, this retirement probably makes it more likely rather than less, the financial regulation would happen. i thought it would happen in any case and now republicans will not be eager to deny chris dodd the victory if he compromise wes richard shelby, the republican
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who serves with him on the banking committee and later with barney frank in the house of representatives who have passed their bill. so handy and larry, on "power lunch candidate ", it looks like financial regulation remains on track. >> john, one quick question. the likelihood of working with republicans, chris dodd's likelihood of working with republicans i would argue grows larger as his lame duckness increases. >> i agree with that. and you saw over the christmas holidays chris dodd may be anticipating the decision that he is announcing today, announced with richard shelby that they've made progress on financial regulation, getting over some of those sticking points on consumer protection, the role of the fed and other things, and i think the role of the fed is likely to be the toughest sticking point in the house and senate negotiations, but you're exactly right. >> let's have more discussion here about senator dodd and financial reform legislation.
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joining us, money and politics columnist at reuters break and views and julie raginski, democratic strategist and comprehensive communications group. both are spectacular cnbc contributors and let me go to julie first. i just want to ask you, i know dick blumenthalquen guest on th show. i've known him for 30-plus years and we both worked for pat moynihan. there is a tea party movement sweeping this country, and i say that linda mcmahon can defeat blumenthal in connecticut and pick off his seat. i'm baiting you a bit because i want to get your view on this. i think this is big news. there's a revolution going on, julie, what do you make of it? >> well, i think you would have probably been more accurate if chris dodd had stayed in the game. i think you're right, blumenthal is an extremely good candidate.
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linda mcmahon runs a very successful enterprise, but she has no experience, and i really think blumenthal has the seat locked up. >> jim, what do you think? >> yes. no experience, but the no experience plus 30 million tends to make more of a viable candidate. >> i didn't say blumenthal was a stronger candidate. i just said he's a nice guy. the $64,000 question going back to john harwood's report, for wall street and investors at the moment does this have any particular impact on financial reform and the role of the federal reserve. you heard dave lionheart from the new york times say the fed missed the last bubble, why do you think they'll get the next one? >> as far as financial reform goes, this has been a great day for wall street buzz one, if financial reform does pass i think you're liable to get a much weaker version than previously. for instance, the consumer financial protection agency, i think that's dead.
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two, dodd's replacement, likely tim johnson, very industry friendly. >> how about jack reed from rhode island. i've seen his name in play. mr. johnson, seniority, yes, but his health situation is up in the air. >> i don't think the announces will be much different each if it was read and certainly not if it was chuck shumer and let's not forget byron dorgan leaving and it was let's bring back glass steagall guy. he's leaving so one of those voices is gone from capitol hill as well. >> everyone wants to go out with a bang ahead of retirement and everyone wants to leave a positive legacy, what do you think his legacy might be if not financial reform. >> that's on track to pass for the next month or so and signed into law. that's obviously a legacy he's leaving for his friend ted kennedy. financial reform is something he's been committed to. the ability to no longer raise
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money and carry favor with wall street packs has liberated him and i think john harwood is right, this makes financial reform that much more likely to happen. >> jimmy p., jimmy p., byron dorgan in north dakota, the republicans will pick up that lead. democrats are bowing out left and right and they're dropping like flies, jimmy p. how many republican senate seats will the gop pick up? >> you what? three or four months ago people were saying 0 to 1. i think six-plus is very doable right now. >> six plus. that changes. that changes a lot. >> it's getting close. >> you disagree? you think the gop will pick up ten, is that right? >> who knows? we have tep months to go. you and i both know ten months is a life time in politics. talk to me again in september. >> barbara boxer is in big trouble in california. >> oh, i don't think so. there are six republican senators retiring, and it's not
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all one-sided. we'll see. >> coming up after this, black rock's bob doll is up with his market predictions and he'll join us live to discuss. >> tea party. first the auto industry is getting back on track. could it be that brand loyalty is returning among car buyers? exclusive details on the new survey that says yes. that's coming up next only right here on "the call." we'll be right back. ♪ ♪ on the road again ♪ just can't wait to get on the road again ♪ i hate hidden fees. why should i have to pay for something that i shouldn't have to pay for? td ameritrade's pricing is clear and it's straightforward... it's spelled out upfront. no hidden fees... no bait and switch. no gotchas. and there's one flat rate for online equity trades... for big accounts... or small ones. that's the way it ought to be. time for fresh thinking. time for td ameritrade. and fedex ground will get it there fast. wait. fedex has ground shipping?
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all right. gold is on a tear this morning. it is up almost 20 bouks the day. about 2%, 1137. essentially a flat dollar out there and take a look at oil. we're going into triple digits when the economy recovers, aren't we? 82.47. almost a full percentage point. >> where's the deflation? where's bernanke's deflation? >> says the peanut gallery. >> shut up, larry. >> the automobile purchase decisions and joining us now with the exclusive results of a new survey and what people under 31 want in their car is cnbc auto reporter phil lebeau. >> melissa, i think the interesting thing about the survey from deloitte out of detroit is it sheds new light in terms of what younger car buyers
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might be looking for. michelle collins out of deloitte joins us for this cnbc exclusive. americanel, this is the second year you've done this survey of buyers between the sxaen 30, and i'm struck by the fact that they've been impacted by what's happened in the last year in the economy. they now want the best economics in the car. they're not worried about styling, correct? >> we found a lot of interesting things in the survey, but the one thing that stood out the most is the effect that the economy has had on the features that gen y is looking for. geny focused on safety and comfort. in the 2009 survey the most important thing for geny was gas mileage followed closely by overall affordability. >> which leads into the next result that we'll put on are up on the screen which is engine preference and we talked to young car buyers and they say when are the electric cars coming? the bottom line is gas with high
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fuel efficiency is still what leads date in terms of what they're looking for, right? >> certainly. they're focused on gas, high fuel efficiency and affordability, really. >> michelle, let me ask you, looking at this study i thought it was fun they reliability was second to last it was after whether or not the car had a cd player. most gen yers don't have cds anymore, they have ipods, but how much buying power do they have? either people in this age group don't have a ton of money or have parents buying cars for them? how important are they? >> there's 75 million people that fit in this age group. we think they make up 25% of the market so they are a key factor now and we think as they continue to grow and mature professionally they will be a key factor. you talk about buying power. one of the things that we did find this year in the survey that gen-y now has a preference for used versus new and that goes to the overall affordab
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affordabili affordability. >> were there brands as winners? >> domestic versus foreign given that they do care so much about gas mileage and that sort of thing? >> interestingly, when we talked about brands they did say that they would be driving the same brand in five years. so they are loyal to their brand. they didn't specifically say one brand or another, but the other thing that did come out of the survey that's very interesting to us is that they said, made in america and the made in america label or brand is important to them. so if it's made in an american factory that matters to them. >> michelle, are you saying that even though you see gm and chrysler go into bankruptcy, they took government money, write them off. you believe gen y is willing to give them another chance. >> that wouldn't influence their buying decisions. >> michelle collins joining us first here on cnbc into an exclusive look as to what the gen y auto buyer is looking for.
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melissa and larry, there's an old adage in the auto business that you don't want to sell these young people out and say they're too young to buy a car. you've got to hook them as early as possible and that's the key group you want to sell. that's a great point. >> thanks for that, phil. coming up next, the predictions about the market in 2009, 11 came through. bob doll is up next to tell us what is in store for 2010. >> arnold schwarzenegger out there in california. that's coming this afternoon and we'll discuss what's ahead for the troubled west coast economy with gubernatorial candidate steve poiser in and wan abjane wells coming up only on "the call." national car rental knows i'm picky. so, at national, i go right past the counter... and you get to choose any car in the aisle.
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doll is revealing his 2010 predictions today. 11 of the prediction he made in 2009 were right. joining us live o cnbc interview, very quickly, which didn't come true? >> we thought u.s. stocks would outperform european stocks and we got that wrong by a few percentage points. >> do you think they can underperform the underdeveloped stocks? >> yes, we do. we think the u.s. stimulus is stronger and leading economic indicators have moved higher faster and we're already in a cyclical recovery. yes, we would argue the u.s. submarket has a leg up on the rest of the developed markets of the world. >> you had a great year last
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year. congratulations. just reading your list here, you have treasury rates going up. i want to ask you, number one, how high. number two, when will the fedst your scenario? >> my view, larry, is ten-year treasury target 450, so up, but want as much as some of the bears are calling for on rates. simply the amount of supply and the continue red dukz in fear will push rates up. i think the fed has already begun the exit strategy if what they're saying and beginning to do. no longer purchasing treasurys and announce the change in mortgages and how they'll purchase there. eventually it will have the rate rise and that's want for some months yet. >> they're already moving to the upside. is that one of the reasons why each though we might see above-trend growth this year of 3% or above, it will still be slower than that of a typical recovery.
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>> exactly right. a normal recovery has a five handle of real gdp for the united states. trend growth is about two and a half. there will be 3.5 for this year so somewhere in between. cyclical stimulus keeps us above trend and secular headwinds of debt and debt paydown keep us from having the normal recovery. >> what happens if there's a mini boom? i think you can get 4 force 5%. that's just my view. if that were to happen would you be more defensive on stocks? >> probably so, larry because that will bring on the fed's issues more quickly in terms of the exit strategy. to get to a 3.5 reel for the u.s. for this year we need a quarter of four something, i would guess and you know there's a fair amount of momentum in the economy each as we speak. so i think there will be days when this recovery looks pretty strong. >> what about the profit story? how big are the profit numbers,
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profits are the mother's milk of the economy. they can drop interest rates in the early part of the recovery cycle. >> absolutely. that's one of our predictions. we think that we'll have a less than ebullien recovery and profits will move up strong low. we think that cost-cutting entered into far sooner than usual by corporate america. the fact that we have an advantage in costs relative to many other parts of the world especially with the declining dollar. we also think that corporate america, therefore is going have profit growth well into the 20s, perhaps, over 30%. we could see $80 for the s&p 500 off of a 62-base for 2009. >> so you think the dollar will continue to decline a sort of long-term declining trend this year? >> we still think that the dollar is under pressure especially against emerging market currencies. we've come out with as many negatives for the euro and the yen. so i think the three major currencies of the world will be in broad trading ranges and i
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wish we could come up with dollar strength and a stronger economy will help. >> but with a lower dollar so you get the emerging market currencies. is that going to introduce inflation into the system or will that remain a non-issue for the u.s.? >> we think inflation remains a non-issue for the rest of the developed world. there's so much excess capacity that we don't have the traditional mechanisms in security situation in the fixed income martkets. >> that's very brave because we're in a new year. that's a very brave inflation forecast and i notice you like health, tech and telco. you don't like the commodity inflation trade and you don't like the industrials reflation trade, do i have that right? >> we don't have any of that industrial on our negative list. we still think there's a time to play those, and i think the dichotomy is this. the developed world, the u.s. in particular could have little
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inflation, but oil and gold still go up because they're global commodities. we are less ebullien about the industrial and precious metal trades as we were a year ago calling it more neutral trading range. >> see if you can get ten out of ten. >> we'll try. >> up next, governor arnold schwarzenegger set to deliver his final state of the state for california. jane wells is in sacramento. hi, jane. >> hey, melissa. it will be his final speech. who else would have that job in a year and who would want that job with a state facing a $25 million deficit in steve poisner wants it. we'll talk to him live after the break. right now 1.2 million people are on sprint mobile broadband. 31 are streaming a sales conference from the road. 154 are tracking shipments on a train. 33 are iming on a ferry.
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welcome back to "the call." i'm sharon epperson, we're watching this rally in oil prices up over $83 a barrel and
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we're keeping our eye on what's happening in florida and what effect that's having on orange juice. orange juice futures have also been on a tear over the last couple of days. freezing temperatures in florida where the $9 billion citrus crop is, three-quarters of our oranges come from this area, they're facing temperatures at the freezing mark or below freezing and that is having an impact on some of the crops there. pockets of damage that we're seeing in some of those areas as the temperatures have dropped below 28 degrees fahrenheit in some areas of florida. keep in mind when temperatures are that low for four hours or more, melissa, we concede damage to crops and that's what traders are worried about that ascent with george juice futures to a two-year high. >> commodity price inflation and thank you so much, sharonener son, the dismal state of california's economy is not a secret. the budget shortfall over $20 billion. the show must go on. in just over an hour, governor
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arnold schwarzenegger will deliver the final state of the state address in sacramento and that's where we find our own jane wells standing by with our special guest. jane for governor, by the way. hi, jane. >> yes. yes. i can't be any worse. would you rather run aig or the state of california? a tough call. steve poisner would like to do it, he's facing a tough primary against meg wittman and both put in $19 million each to get this job. you have a proposed solution to do it which is a freeze on issuing debt? that's interesting for california. freeze on spending, a real freeze on hiring. seems like a no-brainer, aren't those already in the plan? >> believe it or not, no. the non-partisan legislative analyst office that works here in the capital they're estimating that spending will go up by $12 million from this year to next. of course, our house is on fire here, we're out of cash and the state's basically bankrupt and spending is continuing to go up, so the basic part of my spending package is less freeze.
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all spending and all new debt and all hire in order to stop making the product worse. beyond that, i'm proposing $10 billion of very specific program cuts overhauling welfare, overhauling medical in order to get our spending back in control. >> the big question for our viewers or california bonds, 30-year bonts are over 5.5% because some people feel california will default. what are the chances of that? is. >> i don't think that will happen if we take big, bold steps right here. one reason that i want to run for governor now is the crisis is so severe we can get the fundamental structural problems that's keeping state from doing the right thing. a big part of my package is want only to control spending with the freeze and the targeted cuts, but we need to get the economy back on track. we will never, ever be able to balance the budget until we cut taxes to make california competitive again. i'm proposing 10% cuts in personal income taxes, corporate taxes, sales taxes and a 50% cut in capital gains taxes.
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that will make the state competitive again. jobs will come back and the tax base will increase in size. more tax revenues will flow into the state of california and that's how we balance the budget. >> steve poizner. you preempted my question and you have a lot of important root canal here which i think you have to do on spending and debt. i was going ask you where is the happiness of supply-side tax cuts for economic growth. since you outlined the supply-side tax cuts let me switch to this question. how do the numbers add up? a lot of people are going to say you can't cut tax rates and cut spending and the deficit at the same time. how would you respond to that question? >> well, larry, we looked at this question very carefully and the fact is when you cut taxes the right way, the way i'm proposing which is bold, across the board, permanent and don't phase them in. when other states have done exactly that approach, tax revenues go up, not down after you reduce tax rates. the fact is california has one of the highest sales taxes,
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income taxes and one of the highest. that's driving people out. 3,000 people a week pick up and leave. so if you reduce the tax rates we'll become more competitive again. the tax base will grow. tax revenues will go up and not down. >> you talked about a freeze on spending. how long do you think you'll have to keep that in place. >> i'm proposing an 18-month immediate freeze on spending and on issuing new debt and on hiring. that would save billions immediately and that's want good enough. we have to look at all 1200 pages of the budget i've analyzed and i've come up with specific proposals that will save money. for example, welfare, we have 12% of the population in california and 30% of the welfare cases in this state. that's got to change. we can't afford that. we have one of the richest benefit struckures and we don't enforce the work rules. i want to overhaul and modernize the welfare system.
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it shouldn't be a way of life. it should be a safety net. >> meg wittman is all over the radio. her name recognition much higher than yours. she's got millions, too. how do you take her on. >> we're about to launch our campaign right now. you can't buy the office. people are now starting to pay attention, now that we're into the new year. i'm going to be launching my campaign here up on the air soon, and i can promise you this. everybody -- everybody who is eligible to vote in the republican primary will know all about me by election day. >> i'm launching my campaign, a fake one on the blog. >> would you take jane wells as your lieutenant governor running mate? >> that's a great question. >> she's got the bud and she's got credibility and a tremendous national following, steve. >> i would tax human muffin tops would generate revenue. >> what is that? >> i would love jane to be my running mate. i really would. >> there you go. that is a gentlemanly thing to say. >> thanks, guys. >> we'll have badges for jane
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wells tomorrow. just when you thought it was safe to get back into the housing market, meantime, new reports are fueling concerns about a double dip in the downturn. diana olick is up next with the details right here on "the call." advisor:... ms. davis, this is onstar. i've received a signal you've been in a crash... i'm contacting emergency services... 911 dispatch:...onstar reporting a front end crash... on wakefield road... chevy malibu... fire/ems:...air bags deployed... ...injuries reported... advisor: ma'am, help is on the way...ok.
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on the heels of two disappointing reports on home sales, new concerns are emerging about a potential double dip in the housing downturn and just how much more support the market needs from the government. cnbc's diana olick is here with more on the housing front. diana? >> that's right, mandy. so far the federal reserve has given no signal that it will extend its mbs purchases from fannie and freddie. it's still on track to reach the $1.25 trillion limit by the end of march and it's actually been decreasing purchases accordingly for the past few months, with home sales dropping and foreclosures rising, the rise of government stimulus now could be devastating. >> if the administration is more aggressive in making the plan work better, adding an element to the plan that would allow for principal writedown. also if the policymaker comes forward with the jobs package that is effective and quick,
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then i think the fed can get out of this quantitative easing effort. if other policymakers don't step up and odds are that the fed will have to increase its mbs purchases and keep those mortgage rates down. >> now, of course, the plan is the government's foreclosure bailout, but mortgage rates have been rising steadily through the fall and you can see the effect on mortgage application volume. it's been falling steadily over the past few weeks. the four-week moving average for purchases is down 31% from a year ago and refis down 57% and yesterday's drop for 16% of the pending home sales index shows that as soon as that first-time home buyer tax credit was extended and yes, another government stimulus, buyers dropped out of the housing market. the index had been rising steadily since january, but suddenly no more rush to get in under the tax credit wire and perhaps much of the demand had already been pulled forward to when people thought it was going to expire at the end of november. the fed has given no hints that it will stray from its course
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and on the positive si side if we don't get job growth in 2010 it will not be so inclined, but mandy, that is a big if. for more, go to the blog at >> a quick break and we'll be back to discuss this morning's market ak, melissa. >> and the list of stocks to watch as we head into afternoon trading. you're watching cnbc, first in business worldwide.
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